Deal includes promised renegotiation of terms of Windows OEM agreement.

The terms of Microsoft's $2 billion loan into the war chest of Denali Holdings, the Dell private buyout entity led by Michael Dell and Silver Lake Partners, are now public record. Microsoft's money was key in raising the $24.4 billion required to finalize the offer for Dell, but it's possible Dell will benefit even beyond the loan; the loan documents make clear that after the acquisition is complete, Dell will re-negotiate its payment terms for Microsoft software licenses.

"From and after the date hereof," the securities purchase agreement between Microsoft and Denali states, "each of the parties hereto agree to negotiate in good faith and enter into… one or more agreements between the parties and/or their Subsidiaries, in order to modify, alter or amend, effective as of the Closing, the standard terms for payment under the existing commercial agreements between (Microsoft) and/or its Subsidiaries, on the one hand, and Dell and/or its Subsidiaries, on the other hand, including the master OEM relationship agreements."

The OEM relationship agreement specifies the terms by which Dell pays for Windows operating system licenses for the computers it distributes. Just who those terms would be altered to favor isn't clear, but the terms and the loan itself may be part of a move by Microsoft to keep Dell from abandoning the sale of desktop PCs by giving Dell a break on Windows licensing fees. That could create trouble with other PC manufacturers looking to improve margins in the headwinds of declining PC sales.

47 Reader Comments

It's not a bad thing. Dell should stick to being a hardware manufacturer. I know every PC manufacturer in the world has decided they want to go into software-as-service and be the next IBM, but they apparently didn't notice that IBM is still there, with a depth of expertise, research and experience that beats every PC manufacturer combined.

IBM made that jump because they weren't just a hardware manufacturer. They were a computer company from the dawn of computing with massive depth in research, expertise at almost every level of computing, and experience that reaches back to the days of vacuum tubes. Dell can't match that. HP might have been able to do a dime-store copy, but that before they started selling parts of the company off.

The hardware industry is shrinking, but a good deal of that is from its own mistakes. There's still more work for Dell there than there will be as a wannabe IBM.

I doubt the hardware market is "shrinking"...and the PC market certainly isn't disappearing as "PCs" (laptops and desktops) sell more on a bad day than all the tablet vendors combined sell in a AAA week... Besides...the idea of cell phones displacing tablets makes as much sense as the idea of tablets displacing PCs. It's always been a fairly silly idea--another "either-or" scenario that in reality doesn't exist.

Anyway...a thought I had is that in exchange for the $2B loan, Dell might've agreed to pay Microsoft more than it had been paying as a part of the repayment package on the loan. It makes sense that since the loan benefits Dell the new licensing terms would benefit Microsoft. In terms of PC production, Dell is just one of hundreds of OEMs and resellers around the world.

I know every PC manufacturer in the world has decided they want to go into software-as-service and be the next IBM, but they apparently didn't notice that IBM is still there, with a depth of expertise, research and experience that beats every PC manufacturer combined.

I doubt the hardware market is "shrinking"...and the PC market certainly isn't disappearing as "PCs" (laptops and desktops) sell more on a bad day than all the tablet vendors combined sell in a AAA week... Besides...the idea of cell phones displacing tablets makes as much sense as the idea of tablets displacing PCs. It's always been a fairly silly idea--another "either-or" scenario that in reality doesn't exist.

Anyway...a thought I had is that in exchange for the $2B loan, Dell might've agreed to pay Microsoft more than it had been paying as a part of the repayment package on the loan. It makes sense that since the loan benefits Dell the new licensing terms would benefit Microsoft. In terms of PC production, Dell is just one of hundreds of OEMs and resellers around the world.

The PC market isn't going away, but has, beyond any doubt, reached maturity now, and most people aren't locked in the continual upgrade cycle of years past. This is due, in large part to the state of contemporary hardware, where the things are capable enough to be made smaller now.

Desktops are a shrinking pool--more people are purchasing laptops now, no longer needing a (comparatively) large mini-tower.

From a business side, there simply isn't the growth of the past here, and the drop to commodity status means ever-shrinking margins. Dell had been letting quality slip in recent years, so had little to differentiate themselves from the rest...

If I were Microsoft and were determined on establishing a presence in all form factors, smartphones, tablets, laptops, desktop, servers and datacenters, I would go through this checklist (PCs only, servers and business apps are an entirely different category).

1- Check that the goose that lays golden eggs is in good health. Office + Windows7. Check.2- Check that all devices exchange data seamlessly via the cloud. SkyDrive. Check.3- Check that all devices have a common user interface. Windows RT + Metro. Check. 4- Check that apps are portable across devices. Windows RT. Check (sort of). 5- Check that developers have the tools they need. VStudio 2012. Check. 6- Check that developers are thrilled about the new platform. ... ... 7- Populate the platform with new awesome, kickass applications. ... .... 8- Maintain the OEM ecosystem. .... ... [that's where Dell comes in]

So I'd guess/hope that Microsoft is working on 6, 7 and 8. New games will be written; new productivity applications will be developed but no matter what happens, the OEMs need to be there so that the software has plenty of affordable computers to run on.

And Linux desktops and laptops disappear from Dell's catalog in 3...2...

Never mind that MSFT has a history of penalizing OEMs for selling machines without Windows pre-installed, they were convicted for the anticompetitive practice, and the wrist-slap restrictions on them expired just over two years ago.

If anyone thinks the new terms won't do something similar (and then the contracts buried), they're insane.

[quote=WaltC]Anyway...a thought I had is that in exchange for the $2B loan, Dell might've agreed to pay Microsoft more than it had been paying as a part of the repayment package on the loan. It makes sense that since the loan benefits Dell the new licensing terms would benefit Microsoft. In terms of PC production, Dell is just one of hundreds of OEMs and resellers around the world.[/quote]

Dell just being in existence, period, benefits Microsoft. Microsoft is doing anything it can within reason to help out. Whether it be loans or improved licensing terms, so be it.

Anyway...a thought I had is that in exchange for the $2B loan, Dell might've agreed to pay Microsoft more than it had been paying as a part of the repayment package on the loan. It makes sense that since the loan benefits Dell the new licensing terms would benefit Microsoft. In terms of PC production, Dell is just one of hundreds of OEMs and resellers around the world.

Dell just being in existence, period, benefits Microsoft. Microsoft is doing anything it can within reason to help out. Whether it be loans or improved licensing terms, so be it.

Not so much, honestly. If Dell croaks, there's still HP, Asus, Acer, Sony, and a host of others to step right in (at similar pricepoints and mostly the same quality level, if not a bit higher; also better hardware/driver consistency within a given model series).

Much more important to MSFT is the ability to deal with one of the only major players shipping consumer-targeted machines with something other than Windows. MSFT has invested millions (if not billions, by now) over the years towards the singular goal of killing FOSS in general and Linux/UNIX in particular.

And Linux desktops and laptops disappear from Dell's catalog in 3...2...

Never mind that MSFT has a history of penalizing OEMs for selling machines without Windows pre-installed, they were convicted for the anticompetitive practice, and the wrist-slap restrictions on them expired just over two years ago.

If anyone thinks the new terms won't do something similar (and then the contracts buried), they're insane.

I would hope not. If I were MS (and I am not) i would leave those projects as is. Reason being there is not an exceptionally huge demand for it and it will generate more bad press and gain them nothing. Keeping it there would keep people like you and I happy and won't (IMHO) damage the bottom line of MS OS licences.

And Linux desktops and laptops disappear from Dell's catalog in 3...2...

Never mind that MSFT has a history of penalizing OEMs for selling machines without Windows pre-installed, they were convicted for the anticompetitive practice, and the wrist-slap restrictions on them expired just over two years ago.

If anyone thinks the new terms won't do something similar (and then the contracts buried), they're insane.

I would hope not. If I were MS (and I am not) i would leave those projects as is. Reason being there is not an exceptionally huge demand for it and it will generate more bad press and gain them nothing. Keeping it there would keep people like you and I happy and won't (IMHO) damage the bottom line of MS OS licences.

Antitrust climate these days is much weaker than it was when MSFT was convicted (repeatedly) before. They've already been getting away with murder DURING the sanctions against them, and more since they were lifted. They're being cautious with most of the big, public-facing stuff, but as you say, Linux is a relatively small portion of Dell's sales; how many people even knew Dell offered computers without windows, outside of this and similar forums? Expect the outcry to be about as publicly-visible as the debunking of all their anti-FOSS and anti-Linux propaganda; that is to say, unheard by anyone except us techies.

Setting aside speculation on Microsoft's ulterior motives, isn't the renegotiation of licences somewhat routine under such circumstances? If previously the license agreement was with Dell the Publicly-Traded Company, and henceforth Dell will be recognized as a legally-different entity (although still known as 'Dell') wouldn't this change automatically terminate the old agreement and require a new one anyway?

Setting aside speculation on Microsoft's ulterior motives, isn't the renegotiation of licences somewhat routine under such circumstances? If previously the license agreement was with Dell the Publicly-Traded Company, and henceforth Dell will be recognized as a legally-different entity (although still known as 'Dell') wouldn't this change automatically terminate the old agreement and require a new one anyway?

I know every PC manufacturer in the world has decided they want to go into software-as-service and be the next IBM, but they apparently didn't notice that IBM is still there, with a depth of expertise, research and experience that beats every PC manufacturer combined.

Except IBM no longer makes home PCs.

And according to recent rumors, IBM is looking to sell off its x86 server line to Lenovo. There is a bit of deja vu here as IBM sold off its PC line to Lenovo a few years before the PC market started to sink. Everyone was puzzled by this move when IBM made it but looking back at history shows that it was a very good business decisions considering the markets now. This makes one wonder if the commodity x86 server market is about to collapse.

IBM would still be left with their AIX/i5 systems running on POWER and the System z line of main frames. IBM's model of SaaS has made those lines very profitable. Also with cloud computing, it doesn't matter what the back end runs so IBM may also be making a play to move POWER into the space occupied by commodity x86 servers.

And to add a bit of irony to this, I'm typing this up on a Lenovo Thinkpad.

Didn't Microsoft get slapped on the wrist before for insisting that their OEM agreements have a clause stating that the licensee either not offer things like Linux, or that they still had to pay the Windows tax on computers shipped without Windows?

I doubt the hardware market is "shrinking"...and the PC market certainly isn't disappearing as "PCs" (laptops and desktops) sell more on a bad day than all the tablet vendors combined sell in a AAA week... Besides...the idea of cell phones displacing tablets makes as much sense as the idea of tablets displacing PCs. It's always been a fairly silly idea--another "either-or" scenario that in reality doesn't exist.

Really? Cause the numbers seem to indicate exactly the opposite. Feel free to provide your own if you wish to back up your claim.

The PC market isn't going away, but has, beyond any doubt, reached maturity now, and most people aren't locked in the continual upgrade cycle of years past. This is due, in large part to the state of contemporary hardware, where the things are capable enough to be made smaller now.

Desktops are a shrinking pool--more people are purchasing laptops now, no longer needing a (comparatively) large mini-tower.

PC market maturity/saturation has been reached ONLY in the US, and perhaps Western Europe as well. New markets are opening up, so there's lots of room for expansion.

And PCs have been getting smaller since time immemorial... Mainframes became minicomputers, which became microcomputers (i.e. PCs). PCs have been shrinking since their introduction as well... AT became babyAT ('80s), became ATX, became microATX ('90s), became mini-ITX ('01).

People have been claiming laptops will replace desktops for a couple decades, yet it never happens. It doesn't even make sense, as people keep buying more and bigger screens, yet want tiny highly-portable laptops (see the NetBook craze, and popularity of UltraBooks). These days, laptops aren't even big enough to support optical drives, yet it'll be at least a decade before most people give up on renting/buying DVDs/Blu-Ray discs, so they'll continue to need a desktop at home, or at least a docking station, which is essentially almost a PC.

While the PC market may be stagnating, it just needs some new killer feature to come along to convince people its time to upgrade... Glasses-free 3D video? Some killer CPU-heavy feature in Windows 9? Apple OS11? The PC market has always gone in fits and starts, and I don't believe for a second that we're anywhere near the end of the line... Tablets are interesting gadgets, but none of them has shown its remotely near capable enough of replacing a regular PC.

I'm curious what this might mean for Dell's alternative OS choices. Will a new contract for low-cost Windows licenses mean no more Linux?

Well--no one is stopping you from buying a PC pre-installed with Windows, wiping the drive, and setting it up as a Linux box.

You must not pay attention... Like Microsoft's anti-monopolistic attempts to strangle Linux with ACPI... Or quite recently, it's UEFI SecureBoot feature, ensuring nothing but Windows 8 will boot on a PC:

I'm curious what this might mean for Dell's alternative OS choices. Will a new contract for low-cost Windows licenses mean no more Linux?

Well--no one is stopping you from buying a PC pre-installed with Windows, wiping the drive, and setting it up as a Linux box.

You must not pay attention... Like Microsoft's anti-monopolistic attempts to strangle Linux with ACPI... Or quite recently, it's UEFI SecureBoot feature, ensuring nothing but Windows 8 will boot on a PC:

Sean Gallagher / Sean is Ars Technica's IT Editor. A former Navy officer, systems administrator, and network systems integrator with 20 years of IT journalism experience, he lives and works in Baltimore, Maryland.